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The offer of $26.87 a share in cash, stock and warrants, represents a 37 percent premium to El Paso's Friday closing price of $19.59.

Including El Paso's debt, the deal tops $38 billion.

The deal derails El Paso's plan, announced in May, to split into two publicly traded companies, which would have separated its exploration and production business from its pipeline operations. Kinder Morgan said it plans to sell El Paso's exploration and production assets.

In February, Houston-based pipeline company Kinder Morgan went public in an IPO valuing the firm at more than $21 billion. The company's market capitalization as of Friday was around $19 billion.

The transaction has been approved by each company's board, the companies said. Kinder Morgan said it has a commitment letter from Barclays Capital underwriting the full amount of cash required for the transaction.

The new company hopes to generate $350 million a year in cost savings, or about 5 percent of the combined companies' earnings before interest taxes, depreciation and amortization. Kinder Morgan expects to be able to increase its dividend after the deal closes due to these savings.

It said that if the deal were to close at the beginning of 2012, it would expect to be able to pay a dividend of about $1.45 a share that year. But because it expects the deal to close later, it said its dividend will likely be slightly below that target.

The new combined company will be 68 percent owned by Kinder Morgan shareholders with El Paso holders owning the remaining 32 percent.

The companies also said the transaction is expected to close in the second quarter of 2012 subject to regulatory approvals.

Evercore Partners and Barclays Capital advised Kinder Morgan on the deal, while Morgan Stanley advised El Paso. Goldman Sachs acted as an adviser to El Paso on its previously announced spin-off and related matters to the Kinder Morgan deal, the companies said.